With all the scary press that the mortgage industry has received over the past three years it is no wonder that lenders have been wary of loosening guidelines. Up until recently it was extremely difficult to find FHA financing if your middle credit score was below a 640 and if you didn’t have 20% to put down you could forget about conventional financing unless you were above a 680 score. This past week I have received several announcements from many of my lenders reducing their credit score requirements by 20 points on both FHA and conventional loans. So now, if you are a 620 score you can qualify for pretty much all of the government financing available through FHA, VA or USDA and if you are a 660 and above you qualify for conventional with as little as 5% down.

I know that 20 points doesn’t sound like much but in America it is estimated that over 20 million Americans are between a 620 and 640 credit score so how about that for adding to the potential pool of buyers! I understood why lenders kept tightening and tightening during the middle of the credit crunch of 2008 and 2009 but I also knew that it was counterproductive for the economy as a whole. The fewer potential buyers there are for more and more homes hitting the market means ever reducing home prices which means even more foreclosures and even more homes hitting the market. It is a slippery slope we are on right now but, hopefully, with this recent change we can start to climb our way out of this housing debacle we’re all in.

Well, it’s that glorious time of year when we all celebrate with friends and family, stuff ourselves with good food, stay up to late, wrap a million presents, et cetera infinitum. But let’s not forget that this is also the time of year when we have the opportunity to get our last college football fix. It’s bowl season and while many of us wish there were a college football playoff, we are all looking forward to at least a couple of the upcoming bowl match ups.

This year, one of our Loan Officers is about to embark on a 11 month long mission trip where he will be traveling to 11 countries and helping to spread the gospel message of Christ. As huge college football fans, we here at Southwest Funding wanted to enhance the enjoyment of bowl season while at the same time raise money to support our great colleague.

Who really cares about Middle Tennessee versus Miami? (BTW, that’s Miami, Ohio) Nobody that I know of, but maybe they would if there was $300 on the line! So we got to thinking that we could sponsor a nice little pick em with only the bowls played New Years Day and after, a total of 13 games including the national championship.  Southwest is sponsoring the prize pool which will pay out $300 to 1st place, $200 to 2nd place and $100 to 3rd place. In addition, places 4 through 10 will pay $20 each! Pretty good for a $20 bill! Not to mention that you will indirectly be reaching as many as 50,000 individuals over the next year.

1. Signed Gift letter from all parties (Donor and Recipient)
2. Verification of Deposit, Bank statement or Teller statement that evidenced Donor had funds available to provide gift
3. Evidence of transfer of funds between parties (Withdrawal slips, cashier’s check and deposit slips usually handled this)

In the majority of cases, gathering this documentation was fairly simple and straightforward.  Even if you had a super secretive step dad or other relative providing the gift funds you could very easily obtain a Teller statement verifying that, at a minimum, the donor had enough funds to cover a gift of X amount. The newest twist to this is that now we not only have to prove the donor has the funds, but we also have to source and season those funds just like we have to when documenting the borrower’s assets.

Maybe that won’t affect you and I hope it won’t but I don’t personally know too many people who keep five or six thousand dollars just sitting in their checking accounts for months at a time just waiting for a relative to need a down payment gift.  If you are a homebuyer that will be utilizing a gift from a relative you will need to make sure that your donor has their assets properly documented as it can be quite stressful to try and source funds on a individual who really doesn’t have a large stake in your transaction. If they transferred money from a stock market or retirement account you will also have to provide statements for that account as well as documentation showing where they transferred the money to their checking account. Whew……

I assume that someone somewhere was using assets that couldn’t be documented for the buyer and just had them provide the funds to a relative and then had the relative provide a gift to the buyer. Problem solved. Until now. 

How do you avoid a potential catastrophe with this situation. First, don’t try to lie to your loan officer or withhold information. Omitting is no different from lying. Second, make sure your financial house is in order as early as possible during the transaction as this will ensure you will at least be notified quickly of potential problems. Third, be sure to provide all pages of all your asset statements. If you have 4 bank accounts, provide the necessary documentation on all 4. Don’t assume what the minimum documentation will be for your loan. Provide everything you’ve got and let me sort it out. Remember, I’m the expert! You don’t go to the doctor and tell him what you think he wants to hear, you tell him everything so he can make an accurate diagnosis.

This is only true coming from misinformed loan officers that don’t study their industry.  If they don’t know how to structure the loan or what loan program to use, your score is too low! (At least for them to get you approved.) If it cost the same, would you rather have a major surgery done by a hourly waged nurse or a skilled surgeon that has many successful surgeries to his credit? The answer is obvious. The mortgage business changes rapidly and you want to make sure that you are dealing with someone knowledgeable about the changes. What was true even 3 months ago, may be a complete fallacy today.

• Getting a Loan From Your Local Banker Will Save You a Ton of Money.

Maybe, depends on you and your situation. While your banker may have a wealth of experience in the lending business, their primary focus is not on you, but their bottom line. If you have perfect credit, money down and great job history the bank is a good bet. Most of their loan programs are designed around lending money their way. Most banks offer 5 or 6 programs, while I have a relationship with over 150 banks, many that don’t do anything but mortgages. This gives me, and more importantly—You, access to over 1000 programs.  My primary focus is not to fit you into one of a few programs, but to find a few programs that fit YOU and YOUR situation.

• My Realtor will Send me to the Right person.

Your Realtor will send you to the person that they have a relationship with. I have Realtors send me business all the time. The reason they send business to me is because I get loans closed. I don’t have a personal relationship outside of work with any of them. I don’t buy agents lunch or take them out drinking to bribe business out of them. Most loan officers do this because it’s easier to buy agents lunch than it is to actually earn their referrals. Every Realtor that sends me business does so because our first transaction impressed them.  You might get a good referral from a Realtor, then again, you may get referred to the Realtors’ second cousin who just got in the business.

• I filed a Bankruptcy a couple of years ago, So I know I Wouldn’t Qualify for $0 Down.

Don’t let anyone tell you that you can’t buy a house with a bankruptcy. The traditional school of thought says you have to wait two full years after discharge to even be considered for a mortgage. Depending on which type of bankruptcy you filed will determine what is actually possible for you.

• Bad Credit Stays On your Record for 7 Years or More.

This is true, but in most cases loans are evaluated on the last 12 –24 months. They may totally disregard ANY adverse credit issues prior to that 12-24 month window. Most of the loans with zero or no money down cater to those who need leniency in the area of credit. 

Also, having not re-established credit doesn’t mean you cannot get a loan. There are other means for a lender to establish credit history.

• Credit Counseling May Harm Your Credit Rating.

In certain instances, consumer credit counseling services may be a wise decision.  These services can provide education and help with debt problems.  The Credit Counseling Company will set a budget for the client based on their income and how much debt there is to pay off.

The problem comes when counseling companies do not meet the client’s monthly obligations with their creditors.  As a result, they begin to have late payments on their credit report.  In other words, they may not meet the creditor’s minimum monthly payment requirements because the budget calls for a lesser payment.

Overall, credit counseling is an effective tool to reduce debt as long as they meet the client’s due dates and the minimum monthly payment.

• Getting Your Mortgage Loan from the Internet May Cost You.  It could be a costly mistake if you get a loan online from a company in different parts of the country.  There are different rules and guidelines for different states, cities, and even counties.  It can be risky to obtain a mortgage loan from a company across the country if they are not familiar with the rules that govern the area where the property is located.

Typically local companies will be more concerned about their reputation and doing a good job for their customer.  I operate from referrals so it is very important that I meet my customers’ expectations.  Getting a loan online can also take longer because they will not have service companies (title companies, appraisers, and others) to do the job in a timely manner.

Mortgage loans are complex and may not make sense to purchase online. This is especially true if the borrower is looking for maximum service and care.